Read the first part of this series, ‘Are you ‘in’ the vending business?’, by clicking here.
Success in business is the culmination of many small activities that may seem insignificant. Your small activities in the vending business are the basis for all profits that you may or may not have in the future. Mind your pennies and the dollars will follow!
This article is about foundation-building; getting the basics, creating a system that’s functional and profitable and will build long-term success. It starts with a broad analysis. Have you ever looked at your operation objectively? Have you ever stepped back and dissected each function of your business and challenged your assumptions?
A vending operation has many components; it’s a dynamic distribution system, and can be as complicated or as simple as you would like it to be.
Without product, you don’t have a vending business, so how do you get product? Do you go to warehouse clubs, order from manufacturers or third-party suppliers, purchase through cooperatives, and other methods? Each of these methods has advantages and disadvantages, so it’s vital that you stay focused on profitability when purchasing product.
Do you purchase from the lowest-priced supplier, with cost as your only consideration? This is where proper analysis is critical. If you can purchase commodity type products (Coke, Frito Lay, Pepsi and Hershey’s) at a lower price, doesn’t it make sense to purchase from that supplier? The answer isn’t as obvious as it seems.
Have you ever factored in your acquisition costs? An acquisition cost is the total cost of purchasing product, including labour, interest, referrals, scheduling, availability and all other factors that may affect your ability to get product.
Scenario
Vendor ‘A’ buys from warehouse clubs. He goes to the club every day and purchases product. He pays cash and uses the club as his warehouse. The club opens at 7:30am and closes at 9pm. The pricing is consistently low, and he can purchase in relatively small quantities. He spends the first hour of his day in the club (they even give him a free cup of coffee and a pastry).
Analysis
Vendor A’s acquisition cost seems to be low, because he purchases at a low price, doesn’t have to inventory anything or maintain a warehouse. While these are valid points for vending business hobbyists, they don’t include the real cost of acquisition.
First, what is his labour worth? He spends and hour a day (five hours a week or 250 hours a year) walking through and picking product. At $10 an hour, it costs him $2,500 a year in acquisition costs. But this is only part of the cost. What if he spent the first hour filling machines at $100 gross, $50 net (if you’re not picking up $100 an hour and netting $50, you need to reschedule and raise prices. So now his hourly rate goes from $10 an hour to $40 an hour ($50 net – $10 hourly).
At $40 a day, that’s $200 a week or $10,000 a year, assuming only one hour in the club. This equates to nearly $1,000 a month in net profit. Would you like an account that does an extra $1,000 a month?
This doesn’t take into account other factors that can influence your business. Warehouse clubs have limited inventory in regards to selection – what you see is what you get. From a marketing perspective, vending only products that are distributed through non-warehouse lines differentiate your company from the part-timers.
Product dating is also an issue, as product often has ‘short’ dates. Many warehouse clubs track the sales of their vending items and ship the soon to be out of date items to the clubs that sell the most. This can lead to a mismatching of dates, requiring more time to rearrange your machines by date.
While these are not the only factors, they’re significant if you examine your procurement procedures.
If you’re in the vending business, you’re in the trucking business. Most US states require that you abide by the commercial truck laws of the state/s in which you do business. Check with your local department of transportation to determine the regulations.
Selecting the right truck with the right layout impacts the efficiency of your operation. Determine your current needs and estimate your future needs when speculating the proper size truck.
These are two operational concerns in which you can generate more profits by increasing your efficiency and effectiveness.
Larry Towner is a vending business consultant and entrepreneur with four successful companies. He’s been in the vending business since 1983.
A&M Vending Machine Sales
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